This company is winning the trade-down effect

June 18, 2024

If you took your dad out for Father's Day, there's a good chance you treated him at Darden Restaurant (DRI). The company operates several well-known chains, including Olive Garden, LongHorn Steakhouse, Cheddar's, The Capitol Grill, and Eddie V's to name a few.

The steak and casual dining master is set to report earnings Thursday, June 20 before the bell (reminder, the market is closed Wednesday, June 19 so today is last day to trade).

The company has struggled of late, facing mounting headwinds from persistent inflation and strained consumer budgets. Last quarter Darden was a poster child for a bifurcated economy. Darden's quarterly earnings met expectations, but revenue fell short as same-store sales declined 1% for the first time since the pandemic, driven by a 1.8% drop at Olive Garden. LongHorn Steakhouse was the only division with growth.

Lower-income consumers reduced their restaurant spending, with notable declines in transactions from households earning less than $50,000 and $75,000.

Darden DID benefit from the trade-down effect. Darden gained customers from households earning at least $150,000. Darden raised menu prices at a rate slightly below the pace of inflation to avoid significant price increases, aiming to attract and retain customers without heavily impacting their spending power. This is a stark contrast with its industry peers, who are offering discounts to retain consumers.

What is in store this quarter?

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